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Budget Cuts = Higher R.E. Taxes?
Beazley's Scott says R.E. 'bubble' is a fallacy
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Business New Haven
12/23/2002
By: BNH
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Most consumers don't want pay higher taxes for anything: clothing, homes or cars. But it may not be an option, considering the predicament the state's budget is facing. That's why a local realtor and president of the Connecticut Association of Realtors (CAR) is calling on lawmakers to be prudent about real estate taxation.
“As a trade association, we want to make sure it's not a discriminatory tax and unfairly placed on one area more than others,” says Greg Scott, president of the Beazley Co. and CAR.
“Real estate tends to be targeted and it's already taxed heavily, and you could end up having double taxations and taxing the same dollars more than once,” he continues.
Gov. John G. Rowland has proposed a tax rate increase on real estate transactions between $300,000 and $800,000, from 0.5 percent to 1.0 percent. Also on the table is a tax hike on deals greater than $800,000, from one to two percent.
Tax rates on commercial property deals would be increased from one to two percent, and there would similarly be an increase in the conveyance tax on transactions exceeding $300,000, under Rowland's latest plan.
Scott says he's concerned about the long term, not just the current budget woes.
“Any remedy should not single out the housing and real estate industry,” he says. “A tax increase must be a broad tax founded upon ability to pay. It is important that no one industry be penalized or bear the brunt of fiscal burden.”
Adds Scott, “Housing and real estate have been the catalyst that have kept the Connecticut economy healthy during the last 18 months and to negatively impact this sector would be counterproductive. The viability of the real estate market has driven the stability of the state during these uncertain times.”
Nevertheless, Scott expects the real estate market to remain steady.
“I contend that there is no statistical or anecdotal evidence that would suggest the potential for a substantial decline in housing prices,” Scott says.
“One of the more important distinctions between the housing economy and the stock market is the fact the housing market is local in nature and not national,” Scott says.
He adds, “In fact, it is not uncommon for one part of the country to be doing extremely well, while another may be experiencing difficulties.”
According to Scott, the state's housing market is experiencing unprecedented low supply with no indication of any meaningful supply coming in the future. Builders and developers remain cautious due to the sharp decline in the housing sector in the late 1980s and early '90s.
Moreover, restrictive zoning policies of local Planning & Zoning Commissions are making obtaining development approvals next to impossible, a trend exacerbated by aggressive acquisition of open space by state and local governments.
Statewide, the current housing supply is estimated to be at two to three months, Scott says. In 1991, supply levels were at a 24-month wait.
Interest rates, another key component of the market, are at historic lows. A recent move by the Federal Reserve to further lower rates should maintain the low mortgage rates, Scott says.
Nevertheless, he says, “All the factors mentioned won't have much impact if people don't have jobs or are fearful of losing their jobs.”
“Many of us can remember the late 1980s and early '90s when unemployment rates in Connecticut were as high as ten percent,” Scott says. “The current Connecticut unemployment rate hovers at four percent, meaning that 96 percent of people who want jobs have jobs. There is no evidence to suggest that there is a substantial increase in unemployment on the horizon.”
The Realtor acknowledges that many observers question the increase in overall housing appreciation rates, suggesting that the prices are just too high and that incomes haven't kept pace with housing appreciation.
“The balancing factor is the overall cost of housing as a percentage of household income,” Scott explains. “Currently, monthly mortgage payments are at approximately 18 percent of family income, a 30-year low.
“Simply stated, people are able to buy more house for less money due to low interest rates,” says Scott. “The end analysis is as the national economy continues to plod along, the Connecticut housing market will slow its impressive appreciation rates and will adjust to a more sustainable three to five percent, but it would be impossible to conclude that there will be an overall decrease in housing prices.”
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